Truck Driver Wisdom Suggests Housing Stocks Are Bottoming

Includes: LEN, XHB
by: Mike Goodson, CFA

Today I wish to discuss "truck driver wisdom" and how it relates to expectations for the market overall. Several years ago (early 2003 to be precise), I read an article that quoted a trucker from Pennsylvania. I think his name was Jim. The exact quote escapes me now, but the gist was something to the effect that "The market's going lower; everyone knows it's going lower."

I realize that in this age of greater stock ownership, this fellow from the Keystone state may have been some kind of day-trading maven. More likely though, he was just a regular guy who reads the newspaper, watches the nightly news and checks his 401-k statement every month. I suspect his common sense and gut feelings serve him well as he travels the highways and byways of this broad land, but as it applies to the stock market, not so much.

I used his quote as the centerpiece of an address I gave at an NYU business school conference that year. My contention was that when a truck driver is quoted by the national press regarding the stock market, his views are close to being fully discounted and reflected in stock prices. His opinion reflected the consensus. This was a major buy signal for me.

The overall market bottomed in early 2003 and the rest, as they say, is history. So what are the truck drivers telling us now? They would say that the housing market is in real trouble. Existing home sales, housing starts, new permits and so forth all point to additional pain and suffering ahead. Mortgage rates are up, as are foreclosures, as well as inventories of unsold homes. Home prices have not fallen enough yet, the truck driver would continue, to create incremental demand from new buyers. Lennar (NYSE:LEN), a stock I own, today announced an unexpected loss. The ray of hope that the housing market was bottoming back in April has been totally obscured by newly gathered clouds of darkness and gloom.

Despite all this, I am very comfortable with 6.9% of my portfolio in housing stocks. I really like all the attention and focus this industry is receiving now; to me it suggests that smart investors will be making well-reasoned, thoughtful decisions about the stocks. Right or wrong, this focus is likely to help these stocks move to where they should be. I think that will eventually be higher from here.

Keep on truckin'!

Disclosure: Author is long LEN